SUPREME COURT

SECOND DIVISION
MAGELLAN CAPITAL MANAGEMENT
CORPORATION
and
MAGELLAN
CAPITAL HOLDINGS CORPORATION,
Petitioners,
-versus-

G.R. No. 129916

March 26, 2001

ROLANDO M. ZOSA and HON. JOSE P.

SOBERANO, JR., in his capacity as
Presiding Judge of Branch 58 of the
Regional Trial Court of Cebu, 7th
Judicial Region,
Respondents.
x----------------------------------------------------x
DECISION
BUENA, J.:
Under a management agreement entered into on March 18, 1994,
Magellan Capital Holdings Corporation [MCHC] appointed Magellan
Capital Management Corporation [MCMC] as manager for the
operation of its business and affairs.[1] Pursuant thereto, on the same
month, MCHC, MCMC, and private respondent Rolando M. Zosa
entered into an Employment Agreement designating Zosa as
President and Chief Executive Officer of MCHC.
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Under the Employment Agreement, the term of respondent Zosas

employment shall be co-terminous with the management agreement,
or until March 1996,[2] unless sooner terminated pursuant to the
provisions of the Employment Agreement.[3] The grounds for
termination of employment are also provided in the Employment
Agreement.
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On May 10, 1995, the majority of MCHCs Board of Directors decided

not to re-elect respondent Zosa as President and Chief Executive
Officer of MCHC on account of loss of trust and confidence[4] arising
from alleged violation of the resolution issued by MCHCs board of
directors and of the non-competition clause of the Employment
Agreement.[5] Nevertheless, respondent Zosa was elected to a new
position as MCHCs Vice-Chairman/Chairman for New Ventures
Development.[6]
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On September 26, 1995, respondent Zosa communicated his

resignation for good reason from the position of Vice-Chairman
under paragraph 7 of the Employment Agreement on the ground that
said position had less responsibility and scope than President and
Chief Executive Officer. He demanded that he be given termination
benefits as provided for in Section 8 (c) (i) (ii) and (iii) of the
Employment Agreement.[7]
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In a letter dated October 20, 1995, MCHC communicated its nonacceptance of respondent Zosas resignation for good reason, but
instead informed him that the Employment Agreement is terminated
for cause, effective November 19, 1995, in accordance with Section 7
(a) (v) of the said agreement, on account of his breach of Section 12
thereof. Respondent Zosa was further advised that he shall have no
further rights under the said Agreement or any claims against the
Manager or the Corporation except the right to receive within thirty
(30) days from November 19, 1995, the amounts stated in Section 8
(a) (i) (ii) of the Agreement.[8]
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Disagreeing with the position taken by petitioners, respondent Zosa

invoked the Arbitration Clause of the Employment Agreement, to wit:

23. Arbitration. In the event that any dispute, controversy or

claim arises out of or under any provisions of this Agreement,
then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section
and the determination to be made in such arbitration shall be
final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee and Corporation
shall designate one (1) arbitrator who shall, in turn, nominate
and elect who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with
the substantive laws of the Republic of the Philippines. The
arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of Agreement or to grant injunctive
relief of any nature. Any judgment upon the award of the
arbitrators may be entered in any court having jurisdiction
thereof, with costs of the arbitration to be borne equally by the
parties, except that each party shall pay the fees and expenses of
its own counsel in the arbitration.
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On November 10, 1995, respondent Zosa designated his brother, Atty.

Francis Zosa, as his representative in the arbitration panel[9] while
MCHC designated Atty. Inigo S. Fojas[10] and MCMC nominated Atty.
Enrique I. Quiason[11] as their respective representatives in the
arbitration panel. However, instead of submitting the dispute to
arbitration, respondent Zosa, on April 17, 1996, filed an action for
damages against petitioners before the Regional Trial Court of
Cebu[12] to enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss[13] arguing that
(1) the trial court has no jurisdiction over the instant case since
respondent Zosas claims should be resolved through arbitration
pursuant to Section 23 of the Employment Agreement with
petitioners; and (2) the venue is improperly laid since respondent
Zosa, like the petitioners, is a resident of Pasig City and thus, the
venue of this case, granting without admitting that the respondent
has a cause of action against the petitioners cognizable by the RTC,
should be limited only to RTC-Pasig City.[14]
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Meanwhile, respondent Zosa filed an amended complaint dated July

5, 1996.
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On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order

denying petitioners motion to dismiss upon the findings that (1) the
validity and legality of the arbitration provision can only be
determined after trial on the merits; and (2) the amount of damages
claimed, which is over P100,000.00, falls within the jurisdiction of
the RTC.[15] Petitioners filed a motion for reconsideration which was
denied by the RTC in an order dated September 5, 1996.[16]
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In the interim, on August 22, 1996, in compliance with the earlier

order of the court directing petitioners to file responsive pleading to
the amended complaint, petitioners filed their Answer Ad Cautelam
with counterclaim reiterating their position that the dispute should be
settled through arbitration and the court had no jurisdiction over the
nature of the action.[17]
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On October 21, 1996, the trial court issued its pre-trial order declaring
the pre-trial stage terminated and setting the case for hearing. The
order states:
ISSUES:
The Court will only resolve one issue in so far as this case is
concerned, to wit:
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Whether or not the Arbitration Clause contained in Sec.

23 of the Employment Agreement is void and of no effect:
and, if it is void and of no effect, whether or not the
plaintiff is entitled to damages in accordance with his
complaint and the defendants in accordance with their
counterclaim.
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It is understood, that in the event the arbitration clause

is valid and binding between the parties, the parties shall
submit their respective claim to the Arbitration
Committee in accordance with the said arbitration clause,
in which event, this case shall be deemed dismissed.[18]

On November 18, 1996, petitioners filed their Motion Ad Cautelam

for the Correction, Addition and Clarification of the Pre-trial Order
dated November 15, 1996,[19] which was denied by the court in an
order dated November 28, 1996.[20]
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Thereafter, petitioners MCMC and MCHC filed a Motion Ad

Cautelam for the parties to file their Memoranda to support their
respective stand on the issue of the validity of the arbitration clause
contained in the Employment Agreement. In an order dated
December 13, 1996, the trial court denied the motion of petitioners
MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition
for certiorari and prohibition under Rule 65 of the Rules of Court with
the Court of Appeals, questioning the trial court orders dated August
1, 1996, September 5, 1996, and December 13, 1996.[21]
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On March 21, 1997, the Court of Appeals rendered a decision, giving

due course to the petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The
respondent court is directed to resolve the issue on the validity
or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on
the merits until the said issue is resolved. The questioned
orders are set aside insofar as they contravene this Courts
resolution of the issues raised as herein pronounced.
The petitioner is required to remit to this Court the sum of
P81.80 for cost within five (5) days from notice.
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SO ORDERED.[22]
Petitioners filed a motions for partial reconsideration of the CA
decision praying (1) for the dismissal of the case in the trial court, on
the ground of lack of jurisdiction, and (2) that the parties be directed
to submit their dispute to arbitration in accordance with the
Employment Agreement dated March 1994. The CA, in a resolution
promulgated on June 20, 1997, denied the motion for partial
reconsideration for lack of merit.
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In compliance with the CA decision, the trial court, on July 18, 1997,
rendered a decision declaring the arbitration clause in the
Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:
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WHEREFORE, premises considered, judgment is hereby

rendered partially declaring the arbitration clause of the
Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and
directing the parties to proceed to arbitration in accordance
with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the
third to be chosen by both the plaintiff and defendants. The
other terms, conditions and stipulations in the arbitration
clause remain in force and effect.[23]
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In view of the trial courts decision, petitioners filed this petition for
review on certiorari, under Rule 45 of the Rules of Court, assigning
the following errors for the Courts resolution:
I. The trial court gravely erred when it ruled that the
arbitration clause under the employment agreement is
partially void and of no effect, considering that:
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A. The arbitration clause in the employment agreement

dated March 1994 between respondent Zosa and
defendants MCHC and MCMC is valid and binding
upon the parties thereto.
B. In view of the fact that there are three parties to the
employment agreement, it is but proper that each
party be represented in the arbitration panel.
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C. The trial court grievously erred in its conclusion that

petitioners MCMC and MCHC represent the same
interest.
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D. Respondent Zosa is estopped from questioning the

validity of the arbitration clause, including the right

of petitioner MCMC to nominate its own arbitrator,

which he himself has invoked.
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II. In any event, the trial court acted without jurisdiction in

hearing the case below, considering that it has no
jurisdiction over the nature of the action or suit since
controversies in the election or appointment of officers or
managers of a corporation, such as the action brought by
respondent Zosa, fall within the original and exclusive
jurisdiction of the Securities and Exchange Commission.
III. Contrary to respondent Zosas allegation, the issue of the
trial courts jurisdiction over the case below has not yet
been resolved with finality considering that petitioners
have expressly reserved their right to raise said issue in the
instant petition. Moreover, the principle of the law of the
case is not applicable in the instant case.
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IV. Contrary to respondent Zosas allegation, petitioners

MCMC and MCHC are not guilty of forum shopping.
V. Contrary to respondent Zosas allegation, the instant
petition for review involves only questions of law and not of
fact.[24]
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We rule against the petitioners.

It is error for the petitioners to claim that the case should fall under
the jurisdiction of the Securities and Exchange Commission [SEC, for
brevity]. The controversy does not in anyway involve the
election/appointment of officers of petitioner MCHC, as claimed by
petitioners in their assignment of errors. Respondent Zosas amended
complaint focuses heavily on the illegality of the Employment
Agreements Arbitration Clause initially invoked by him in seeking
his termination benefits under Section 8 of the employment contract.
And under Republic Act No. 876, otherwise known as the Arbitration
Law, it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following
discussions made by the Court of Appeals, speaking thru Justice
Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:

As regards the fourth assigned error, asserting that jurisdiction

lies with the SEC, which is raised for the first time in this
petition, suffice it to state that the Amended Complaint squarely
put in issue the question whether the Arbitration Clause is valid
and effective between the parties. Although the controversy
which spawned the action concerns the validity of the
termination of the service of a corporate officer, the issue on the
validity and effectivity of the arbitration clause is determinable
by the regular courts, and do not fall within the exclusive and
original jurisdiction of the SEC.
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The determination and validity of the agreement is not a

matter intrinsically connected with the regulation and internal
affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244;
Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be
decided in accordance with the general laws, and do not require
any particular expertise or training to interpret and apply (Viray
vs. CA, 191 SCRA 308).[26]
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Furthermore, the decision of the Court of Appeals in CA-G.R. SP No.

43059 affirming the trial courts assumption of jurisdiction over the
case has become the law of the case which now binds the
petitioners. The law of the case doctrine has been defined as a term
applied to an established rule that when an appellate court passes on
a question and remands the cause to the lower court for further
proceedings, the question there settled becomes the law of the case
upon subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP
No. 43059 has already attained finality as evidenced by a Resolution
of this Court ordering entry of judgment of said case, to wit:
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ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a
decision/resolution rendered in the above-entitled case was
filed in this Office, the dispositive part of which reads as
follows:
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G.R. No. 129615. (Magellan Capital Management

Corporation, et al. vs. Court of Appeals, Rolando Zosa, et

al.). Considering the petitioners manifestation dated

August 11, 1997 and withdrawal of intention to file
petition for review on certiorari, the Court Resolved to
DECLARE THIS CASE TERMINATED and DIRECT the
Clerk of Court to INFORM the parties that the judgment
sought to be reviewed has become final and executory, no
appeal therefore having been timely perfected.
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and that the same has, on September 17, 1997, become final and
executory and is hereby recorded in the Book of Entries of
Judgments.[28]
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Petitioners, therefore, are barred from challenging anew, through

another remedial measure and in any other forum, the authority of
the regional trial court to resolve the validity of the arbitration clause,
lest they be truly guilty of forum-shopping which the courts
consistently consider as a contumacious practice that derails the
orderly administration of justice.
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Equally unavailing for the petitioners is the review by this Court, via
the instant petition, of the factual findings made by the trial court that
the composition of the panel of arbitrators would, in all probability,
work injustice to respondent Zosa. We have repeatedly stressed that
the jurisdiction of this Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is limited to reviewing
only errors of law, not of fact, unless the factual findings complained
of are devoid of support by the evidence on record, or the assailed
judgment is based on misapprehension of facts.[29]
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Even if procedural rules are disregarded, and a scrutiny of the merits

of the case is undertaken, this Court finds the trial courts
observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval. Thus:
From the memoranda of both sides, the Court is of the view
that the defendants [petitioner] MCMC and MCHC represent
the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct
and separate from each other and that a corporation has a
personality distinct and separate from those persons composing

the corporation as well as from that of any other legal entity to

which it may be related.
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But as the defendants [herein petitioner] represent the same

interest, it could never be expected, in the arbitration
proceedings, that they would not protect and preserve their own
interest, much less, would both or either favor the interest of
the plaintiff. The arbitration law, as all other laws, is intended
for the good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself but the
provision of the Employment Agreement based on the said law,
which is the arbitration clause but only as regards the
composition of the panel of arbitrators. The arbitration clause
in question provides, thus:
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In the event that any dispute, controversy or claim arise

out of or under any provisions of this Agreement, then the
parties hereto agree to submit such dispute, controversy
or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be
final and binding. Arbitration shall be effected by a panel
of three arbitrators. The Manager, Employee, and
Corporation shall designate one (1) arbitrator who shall,
in turn, nominate and elect as who among them shall be
the chairman of the committee. Any such arbitration,
including the rendering of an arbitration award, shall take
place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no
power to add to, subtract from or otherwise modify the
terms of this Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators
may be entered in any court having jurisdiction thereof,
with costs of the arbitration to be borne equally by the
parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration. (Emphasis
supplied).
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From the foregoing arbitration clause, it appears that the two

(2) defendants [petitioners] (MCMC and MCHC) have one (1)

arbitrator each to compose the panel of three (3) arbitrators. As

the defendant MCMC is the Manager of defendant MCHC, its
decision or vote in the arbitration proceeding would naturally
and certainly be in favor of its employer and the defendant
MCHC would have to protect and preserve its own interest;
hence, the two (2) votes of both defendants (MCMC and
MCHC) would certainly be against the lone arbitrator for the
plaintiff [herein defendant]. Hence, apparently, plaintiff
[defendant] would never get or receive justice and fairness in
the arbitration proceedings from the panel of arbitrators as
provided in the aforequoted arbitration clause. In fairness and
justice to the plaintiff [defendant], the two defendants (MCMC
and MCHC) [herein petitioners] which represent the same
interest should be considered as one and should be entitled to
only one arbitrator to represent them in the arbitration
proceedings. Accordingly, the arbitration clause, insofar as the
composition of the panel of arbitrators is concerned should be
declared void and of no effect, because the law says, Any clause
giving one of the parties power to choose more arbitrators than
the other is void and of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC
and MCHC) [herein petitioners] and the plaintiff [herein
defendant] should be settled in the arbitration proceeding in
accordance with the Employment Agreement, but under the
panel of three (3) arbitrators, one (1) arbitrator to represent the
plaintiff, one (1) arbitrator to represent both defendants
(MCMC and MCHC) [herein petitioners] and the third
arbitrator to be chosen by the plaintiff [defendant Zosa] and
defendants [petitioners].
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x x x[30]
In this connection, petitioners attempt to put respondent in estoppel
in assailing the arbitration clause must be struck down. For one, this
issue of estoppel, as likewise noted by the Court of Appeals, found its
way for the first time only on appeal. Well-settled is the rule that
issues not raised below cannot be resolved on review in higher
courts.[31] Secondly, employment agreements such as the one at bar
are usually contracts of adhesion. Any ambiguity in its provisions is

generally resolved against the party who drafted the document. Thus,
in the relatively recent case of Phil. Federation of Credit Cooperatives,
Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria
Abril,[32] we had the occasion to stress that where a contract of
employment, being a contract of adhesion, is ambiguous, any
ambiguity therein should be construed strictly against the party who
prepared it. And, finally, respondent Zosa never submitted himself
to arbitration proceedings (as there was none yet) before bewailing
the composition of the panel of arbitrators. He in fact, lost no time in
assailing the arbitration clause upon realizing the inequities that
may mar the arbitration proceedings if the existing line-up of
arbitrators remained unchecked.
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We need only to emphasize in closing that arbitration proceedings are

designed to level the playing field among the parties in pursuit of a
mutually acceptable solution to their conflicting claims. Any
arrangement or scheme that would give undue advantage to a party in
the negotiating table is anathema to the very purpose of arbitration
and should, therefore, be resisted.
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WHEREFORE, premises considered, the petition is hereby

DISMISSED and the decision of the trial court dated July 18, 1997 is
AFFIRMED.
SO ORDERED.
Bellosillo, Mendoza and De Leon, Jr., JJ., concur.
Quisumbing, J., is on leave.
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[1]

Section 1 of Amended and Restated Management Agreement, Annex, B,

Rollo p. 74.
par. 2 of the Pre-Trial Order dated October 21, 1996; Annex BB, Rollo, p.
241.
Annex C of Petition, Rollo, pp. 89-101; 217-229.
par. 5 of Petitioners Memorandum, Rollo, p. 560.
par. 5.1 - 6.4, ibid., Rollo, pp. 560-562.
par. 4, ibid., Rollo, p. 559.
par. 6-7, Amended Complaint, Rollo, pp. 173-174; p. 562.
Annex O of Petition, Rollo, p. 130.
Annex P, of Petition, Rollo, p. 131.
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[2]

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[3]
[4]
[5]
[6]
[7]
[8]
[9]

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[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]

Annex R, of Petition, Rollo, p. 133.

Annex Q, of Petition, Rollo, p. 132.
Annex BB, Rollo, p. 241.
Annex S, Rollo, pp. 134-145.
Annex U, Rollo, p. 179.
Annex X, Rollo, p. 185-186.
Annex AA, Rollo, p. 240.
Par. 9, Petitioners Memorandum, Rollo, p. 566.
Pre-trial Order, Annex BB, Rollo, pp. 241-243.
Annex CC, Rollo, pp. 248; 566-567.
Annex DD, Rollo, p. 252.
The issues submitted to the Court of Appeals are as follows:
I.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
ISSUED THE QUESTIONED ORDERS DATED 1 AUGUST 1996
(ANNEX A), 05 SEPTEMBER 1996 (ANNEX B) AND 13 DECEMBER
1996 (ANNEX C) WHICH DEFERRED THE RESOLUTION OF THE
ISSUE REGARDING THE VALIDITY OF THE ARBITRATION
CLAUSE IN THE EMPLOYMENT AGREEMENT UNTIL AFTER
TRIAL ON THE MERITS.
II.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
FAILED TO RULE THAT THE ARBITRATION CLAUSE UNDER THE
EMPLOYMENT AGREEMENT IS VALID AND BINDING ON THE
PARTIES THERETO.
III.
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RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF

JURISDICTION WHEN IT TOOK COGNIZANCE OF RESPONDENT
ZOSAS AMENDED COMPLAINT INSTEAD OF REFERRING THE
SAME IMMEDIATELY TO ARBITRATION PURSUANT TO THE
EMPLOYMENT AGREEMENT BETWEEN PETITIONERS AND
RESPONDENT ZOSA.
IV.
IN ANY EVENT, RESPONDENT COURT ACTED AND IS
CONTINUING TO ACT WITHOUT JURISDICTION IN HEARING
THE CASE BELOW, CONSIDERING THAT IT HAS NO
JURISDICTION OVER THE NATURE OF THE ACTION OR SUIT
SINCE CONTROVERSIES IN THE ELECTION OR APPOINTMENT
OF OFFICERS OR MANAGERS OF A CORPORATION, SUCH AS THE
ACTION BROUGHT BY RESPONDENT ZOSA, FALL WITHIN THE
ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SECURITIES
AND EXCHANGE COMMISSION.
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V.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
REFUSED TO DISMISS THE ACTION BELOW FOR IMPROPER
VENUE.
VI.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
FAILED TO DISMISS THE AMENDED COMPLAINT FOR LACK OF
THE REQUISITE CERTIFICATION OF NON-FORUM SHOPPING.
Court of Appeals Decision, pp. 5-6; Rollo, pp. 316-317.
Ibid., pp. 329-330.
Annex A, RTC Decision, pp. 72-73.
Rollo, pp. 571-573.
Now Associate Justice of this Court.
Court of Appeals Decision, p. 16; Rollo, p. 321.
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance Corporation,
271 SCRA 457 [1997].
Rollo, p. 350.
Congregation of the Religious of the Virgin Mary vs. CA, 291 SCRA 385
[1998].
Rollo, pp. 71-72.
Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; Manalili vs. Court of
Appeals, 280 SCRA 400 [1997].
G.R. No. 121071, December 11, 1998.
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[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]

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[30]
[31]

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[32]

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